What Is Value Based Pricing?

Value-based repricing explained

Value based repricing is a pricing method formulated depending on how much an end product is worth to customers. This is based on the sheer value and worth of the end product to customers as opposed to to the costs involved. Obviously, this price optimisation method will only be feasible for certain types of business. Ultimately, the business will be able to sell their product with significantly increased profit than if they used a standard cost plus pricing method.

When do we use value based repricing?

Value based price optimisation is only used if it will increase profit without impacting on sales. In other words, we don’t want the higher price to deter customers from buying the product, only to maximize the potential profit increase that can be made on each individual product or service. When used for the right business, value based repricing is a highly efficient repricing method to increase profit.

A typical business that uses value based repricing might sell:

  • An invaluable service that will, for example, save the user £1000′s in the future such as an invaluable software plugin
  • In demand and highly sought after fashion accessories and clothing
  • A rare, niche product or service
  • Shortage items, for example food and drink at a closed off festival
  • Fundamental add-ons such as camera lenses and printer cartridges

Increase profits with value based repricing

When considering using value based pricing for your business, it’s important to have a good understanding of your customer’s perception of your service – how highly they regard it and exactly how much it benefits them. One way to research this, is to carry out surveys on existing customers. If you have a product that you currently sell for £50, but it turns out to be saving customers £500 a year, you might increase profit by raising your price to £150.

Of course, it’s important to be careful not to get carried away and charge too much. If your prices are clearly considerably higher than your costs to customers, then you run the risk of losing sales and giving the impression of exploitation (see Psychological Repricing). If optimising prices at a balance though, you can drastically increase profits without affecting sales.

Combine value based pricing with automatic price tracking and dynamic price updating to stay one step ahead of competition with The Repricing Company.